Medicare’s temporary reprieve

The Congressional Budget Office again cut its 10-year Medicare and Medicaid spending estimates, reducing by $137 billion, or 2%, its 10-year projections for Medicare spending. The CBO noted that federal spending on the program has been “significantly lower” than the projections for the past three years.

CBO estimates Medicare spending will be about $1.1 trillion in 2023, compared to $551 billion in 2012. According to a budget and economic outlook for 2013-2023, the 3% growth in Medicare spending for 2012 was the slowest growth rate since 2000. Report authors said spending in Medicare Parts A and B has risen by an average of 2.9% per year since 2009 — much less than the 8.4% annual growth seen between 2002 and 2009.

Advocates for Obamacare are already crediting the legislation’s payment reforms, but few of these have taken effect. There is scant evidence that the few early provisions have had much of an impact. It’s far more likely that the slow growth reflects the same trends being seen in the private sector, where medical spending has been impacted by the recession and slow recovery. People are thinking twice about seeking out health care, and incurring out of pocket costs. The Medicare Trustees themselves said as much, and commented “For these reasons, the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range or the long range.” The growth of Medicare Advantage has also helped tame spending growth, and Medicare’s actuary has said as much.

In the end, if nothing else, the better budget outlook makes it far less likely that the Obama administration will feel compelled to stand up its controversial Independent Payment Advisory Board (IPAB). IPAB’s mandate is to propose cuts to providers and medical technologies in order to keep Medicare’s spending growth in line with the economy’s overal rate of inflation.

With Medicare growth unlikely to outstrip inflation in the foreseeable future, the board’s mandate to cut costs is unlikely to be triggered. It’s a temporary reprieve. Costs will surely start rising once the brunt of the baby boomers start retiring, or the economy starts to grow more briskly. It’s not clear which will come first.